Month: September 2026

PCE Price Inflation: There’s more work to do

Posted on by Paul Gomme

According to recent BEA release, inflation as measured by the PCE (personal consumption expenditure) price index rose in August. On a month-over-month basis, this measure of inflation shot up from 0.61% in July to 3.79% in August. There was a more modest increase, from 3.36% to 3.42%, on a year-over-year basis. Our measure of trend rose from 3.36% to 3.42%.

As our readers well know, the Fed places more emphasis on core PCE inflation — that is, after removing the food and energy components. By this measure, monthly inflation rose from 1.52% to 3.01% (annualized) while the annual rate was almost unchanged, increasing from 2.98% to 3.01%. Our measure of trend bumped up from 2.46% to 2.64%.

Chairman Warsh has commented previously about inflation measures and some have suggested using a “trim” rather than a “core” measure. The PCE trimmed mean came in at 1.92% on an annualized monthly basis and 2.19% year over year. We will see what measure the Fed will start to rely on….

These inflation numbers put the Fed in a bind. 3% is well above the committee’s stated target of 2%. To be sure, the trimmed mean PCE inflation rate is near the Fed’s target — but there’s always a danger that the Fed will be seen as shopping for some measure of inflation that meets its target. While the FOMC raised the Fed funds rate by 0.25 percentage points at its last meeting in mid-September, it’s not clear that this increase is sufficient to bring inflation down to target in a timely fashion.

August CPI: Inflation is up (again)

Posted on by Paul Gomme

The Bureau of Labor Statistics’ September CPI release reports a marked increase in month-over-month inflation from 0.89% to 4.86% on an annualized basis for the overall CPI, and from 2.62% to 3.53% for core CPI. There was little change in the year-over-year inflation measures: From 3.30% to 3.35% for overall CPI, and a modest decline from 4.47% to 4.45% for core CPI. As we have discussed in previous posts, our trend measure of inflation takes a middle ground between the highly volatile month-over-month measures and the extremely sluggish year-over-year measures. Our measure of trend inflation rose from 1.92% to 2.90% for overall CPI, and a more modest increase, from 2.17% to 2.62%, for core CPI.

The 16% trimmed mean CPI inflation rate was little changed: it fell from 2.71% in July to 2.67% in August. As mentioned in an earlier post on the CPI and trimmed mean, there is a lot of noise in monthly price movements. The “core” notion, removing food and energy, is a now often used measure. As can be seen above, the headline number moved up substantially and the core measure by a little less. While the core removes food and energy alone, the price movements across all areas can also be volatile. The components graph below shows a few different categories, with medical care prices falling substantially. The 16% trimmed mean removes the top and bottom 8% of the price changes.

By almost any measure, the price numbers remain well above the Fed’s 2% target, putting more likelihood on rising interest rates in the near future.

August Employment

Posted on by peter.c.rupert

By Paul Gomme and Peter Rupert

The BLS announced that payroll employment increased 162,000 in August, the second highest since December, 2024. Private employment was up 127,000.

Average weekly hours increased 0.1, now sitting at 34.4, and with the 127,000 increase in employment total hours of work increased by 0.39%. Total hours measures the hours of work that firms paid to produce output. While the headline employment number is what the market tends to react to on announcement, notice there can be times when employment rises but total hours fall, meaning firms actually paid for fewer hours. A glaring example is February and March. The number of employed persons fell by 148,000 in February and total hours also fell. However in March, private employment rose by 202,000 yet total hours paid fell.

The household survey reported an increase in employment of 569,000. Labor force participation increased from 61.4% to 61.6%. The number of people not in the labor force shrank by 551,000. These changes increased the unemployment rate slightly, from 4.09% to 4.14%.